Impediments to efficient land reallocation in agriculture: Multi-agent simulation model of transaction costs and farm retirement

Abstract

This study examines the effect of land exchanges among farm households (FHs) on agricultural sustainability and viability using a multi-agent simulation model. The initial values of the model are fixed so that the simulation results might reproduce the sequence of land use pattern in Japanese agriculture. The novelty of this study is three-fold. First, it quantitatively assesses the extent to which transaction costs incurred by lessors and lessees impede the sound development of land rental markets. Second, the simulation model considers inter-regional heterogeneity in land use patterns and the interactive behavior of FHs regarding land exchanges. Third, the model elucidates the mechanisms by which the equilibrium land rent reaches zero and farmland is abandoned when some FHs retire from farming. Farmland abandonment has become a global phenomenon that has profoundly altered the traditional agricultural landscape in various countries. The present study suggests that the development of land rental markets associated with farm retirement alone does not strengthen agricultural production capacity at the national level. Particularly, if FH retirement progresses to the point where the equilibrium land rent drops to zero, farmland abandonment occurs, which threatens agricultural sustainability and viability. This study concludes that preventing farmland abandonment is a policy issue of the highest priority to ensure global food security and the sustainable development of agriculture.